By: Fred Shuchart
On May 16, 2014, the Texas Supreme Court issued an opinion dealing with the hospital lien statute and settlements in McAllen Hospital, LP v. State Farm County Mutual Insurance Company. In sum, the Texas Supreme Court concluded that issuance of a settlement check to both the insured and medical services provider does not satisfy the statute if the medical provider does not actually receive the funds.
In State Farm, the insured was involved in an automobile accident which resulted in injuries to two individuals in the other vehicle. Both individuals received medical treatment at McAllen Hospital as a result of the accident and the hospital filed liens to secure payment for the services. The two claimants settled with State Farm and executed full releases. Although the hospital was a payee on the checks, it did not sign the release nor was it aware that the matters had been settled and checks had been issued. The claimants cashed the checks without the hospital's endorsement and took all the proceeds.
The hospital sued State Farm to recover under its hospital liens. State Farm moved for summary judgment on the grounds that the issuance of the check made payable to the hospital was a "good faith" effort to comply with the hospital lien statute and therefore the releases executed by the claimants were valid and State Farm had no liability to the hospital. Both the trial court and Court of Appeals agreed with State Farm.
The Texas Supreme Court reversed and concluded that the hospital lien statute had not been complied with and therefore the releases were invalid and the hospital had a valid claim for the liens. In reaching its conclusion, the Texas Supreme Court relied upon the Uniform Commercial Code and concluded that, although delivery to a single payee constitutes a delivery to joint payees, the payment to a single payee does not discharge the liability to the other payee. In other words, if the hospital does not actually receive funds, the hospital lien is not discharged. State Farm argued that the hospital had recourse against the bank for cashing the checks without its endorsement. The court responded that the viability of the lien claim does not rest on the lack of other remedies. The court did not resolve whether the hospital had a direct claim against State Farm or only its insured.